Any agency that deals with commercial lines is familiar with the daunting task of processing and explaining additional insured endorsements and certificates. But every now and then, an agency handles a request to name a party as an additional named insured. Just what is the difference between additional insured status and that of an additional named insured?
In general, being a named insured gives that party greater rights under the policy. However, there are also downsides to that status because it carries greater responsibilities. From the perspective of the insured and the insurer, additional named insured status is typically something to be avoided unless absolutely necessary.
An additional named insured is essentially the same as the policyholder. Think of an additional named insured as a subsidiary or similar firm. There is much more than a contractual relationship, with the exception of some management contracts. Under these circumstances, this status is probably appropriate; but it is rarely appropriate under the circumstances in which agents are too often asked to name a party as an AI.
An additional insured is where two arms-length parties have agreed contractually that one party is to be added to the other's insurance. That party usually cannot be added to a liability policy as an additional named insured. It should be noted that this does not apply to various property coverages—most notably, builder's risk. When such requests are received from arms-length parties, it most often occurs because the requestor doesn't understand the significance of named AI status.
Advantages of additional insured status include, but are not limited to:
- To the degree that coverage is provided, there is no question of enforceability, as is so often the case with indemnification.
- The additional insured has direct rights to defense from the named insured's insurance carrier, and must be provided a separate defense. Defense of an additional insured is paid in addition to the limits of liability.
- The additional insured may, in fact, have broader coverage than the named insured under certain circumstances. There may be restrictive coverage conditions that would apply to a named insured—including an additional named insured—that wouldn't apply to the additional insured because he or she is not a party to the contract.
- The additional insured obtains personal injury coverage that is usually excluded by a contractual assumption.
- Depending upon the jurisdiction, the additional insured may be provided coverage for its sole negligence if it has any causal relationship with the named insured. ISO's new AI endorsements seek to restrict that as many states currently do by law.
In addition, disadvantages include, but are not limited to:
- There are more than 30 ISO additional insured forms. In addition, there are a seemingly limitless number of company-specific additional insured forms, blanket and manuscript forms. So, just saying "additional insured" means almost nothing.
- The additional insured endorsement provides only a limited amount of coverage. The endorsement must be read to determine how limited it is. Many forms are becoming increasingly limited. In at least one instance, a carrier changed its form three times in one year. Any guess as to how many of those changes were in the additional insured's favor? And if unfavorable for the additional insured, what does that mean for the named insured whom may find himself or herself in breach of contract?
- Unless requested otherwise, the additional insured does not extend to officers, directors and employees of the additional insured. Contrast that with additional named insured status where that scenario could happen: As the insurer or even the purchaser of the policy, would one want to broadly enlarge the scope of "who is an insured" under a policy?
- Unless handled carefully, additional insured status could trigger the other insurance clause.
- The limits provided by the policy on which the additional insured is added could be eroded or exhausted by claims, or that carrier could become insolvent. In addition, the policy could be cancelled with no notice to the additional insured, a matter that has been litigated in some jurisdictions. The same could be true if there is an umbrella policy.
- An additional insured usually receives a certificate of insurance as "proof" of coverage. This is no enforcement for this document.
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